Some lenders say no to extending terms — even if it means losing the deal

Affordability is rising in prominence as the industry's average interest rate and transaction price tick up month after month. But despite consumers' drive to get to their ideal payment, lenders are staying disciplined.

Many lenders are capping loan terms, even if it means they lose the sale, or telling customers who owe more on their loans than their cars are worth to stay out of the market longer.

Even with pressure from dealers or consumers, Chuck Berend, director of U.S. auto lending at BBVA Compass, suggests avoiding extremely long loan terms, especially if the customer is already upside down.

When BBVA tells dealers that it wants to cap loan terms at 84 months, dealers often ask the lender, " 'If it's an 800 FICO customer with lots of income, what do you care?' " Berend said at the Auto Finance Summit last month in Las Vegas. "That makes it a little more challenging for us, especially because we can make that decision and then somebody else is going to write that deal. I just don't like financing your last car when financing this car."

Dealers sometimes push lenders into "uncomfortable places" because of short-term pressure on sales volume, said Jim DeTrude, vice president of NMAC sales and marketing at Nissan Motor Acceptance Corp. Discomfort can come from the creditworthiness of the buyer or the length of the loan term, he said.

NMAC isn't facing such pressures from Nissan or Infiniti dealers or from the brands themselves, he said.

"They've dealt with negative equity," DeTrude said. "They feel like they've moved through most of those issues" and have been careful with lengthening loan terms.

Negative equity levels will likely worsen if lenders continue to pull other levers, such as stretching loan-to-value ratios and requiring less money down, said Teri Robinson, senior vice president of originations at Consumer Portfolio Services, a subprime lender.

"You have to be willing to walk away when the deal just doesn't make sense," even if the customer is unhappy, Robinson said.

Lenders can't make decisions to please customers when the financing will be on their books for several years, she added.

In some cases, lenders should help customers walk away from a vehicle purchase, said Jonathan Levin, CEO of Turner Acceptance Corp. Doing so often leads to pushback from dealers, he said, but "there is a reason why we are still lending and others are not."

Jerry Bowen, head of dealer relationships and product for Wells Fargo Auto, questions the long-term value of 84-month loans for the consumer. "I'm not sure the dealer thinks that's a good outcome because the dealer wants every opportunity to get the consumer back sooner than that," Bowen said. "And, too often, when they do get the consumer back, the consumer is upside down on their vehicle, which makes it a pretty tough conversation for the dealer and the lender."

Now when Wells Fargo evaluates a loan, "we have expanded our focus to [try] to factor in not only what is the cost of the vehicle but also how does this car loan affect [the] customer's ability to service other debts?"

An auto loan that causes the customer to default on other debt is not a good loan to make, he said. "I'm not so sure that [the] industry has always thought about things like that."